Key Takeaways

• The programmatic supply chain involves multiple players including DSPs, SSPs, ad exchanges, and data providers

• On average, publishers receive only 51% of advertiser spend due to fees paid to various intermediaries

• Header bidding and supply path optimization have significantly changed how the supply chain functions

• Industry efforts like sellers.json and ads.txt are helping combat fraud while improving transparency

Understanding the Programmatic Ecosystem Players

The programmatic advertising ecosystem can feel overwhelming with its alphabet soup of acronyms and technical jargon. But at its core, it's a marketplace connecting buyers (advertisers) with sellers (publishers) through a series of technological intermediaries.

Let's break down the key players in this ecosystem:

1. Advertisers and Agencies

The journey begins with brands and advertisers who want to reach specific audiences. Many work with media agencies to handle their programmatic campaigns. These entities typically use demand-side platforms (DSPs) to execute their buying strategies.

Some advertisers have brought programmatic buying in-house, particularly larger brands like Procter & Gamble and Unilever who want more control and transparency. This shift has been driven by concerns about hidden fees and lack of visibility into where their ad dollars actually go.

2. Demand-Side Platforms (DSPs)

DSPs are the workhorses of the programmatic buying process. They allow advertisers to:

• Purchase ad inventory across multiple sources through a single interface

• Apply sophisticated targeting parameters

• Optimize campaigns based on performance data

• Manage budgets and bidding strategies

Major DSPs include Google's DV360 (formerly DoubleClick), The Trade Desk, Amazon DSP, and MediaMath. Each has different strengths and specialties, but all serve the same basic function: helping advertisers bid on available impressions.

DSPs typicaly charge a platform fee that ranges from 10-20% of media spend, though this varies considerably depnding on volume and relationships.

3. Ad Exchanges

Ad exchanges are the digital marketplaces where ad inventory is bought and sold, similar to a stock exchange. They facilitate the auction process that determines which advertiser wins a particular impression.

The most prominent ad exchanges include:

• Google Ad Exchange (now part of Google Ad Manager)

• Xandr (formerly AppNexus, now owned by Microsoft)

• OpenX

• PubMatic

• Magnite (formerly Rubicon Project)

While exchanges were once discrete platforms, the lines between exchanges, SSPs, and even DSPs have blurred considerably in recent years as companies expand their offerings.

4. Supply-Side Platforms (SSPs)

SSPs help publishers manage and optimize their ad inventory. They connect to multiple exchanges and demand sources to ensure publishers get the best possible price for their inventory.

Key functions of SSPs include:

• Yield optimization

• Price floor management

• Header bidding implementation

• Inventory management and forecasting

Major SSPs include Google Ad Manager, PubMatic, Magnite, and Index Exchange. Like DSPs, many SSPs have expanded their functionality to include exchange capabilities.

5. Publishers

Publishers are the entities that actually own the websites, apps, and platforms where ads appear. They range from major media companies to individual bloggers.

Publishers implement ad tech solutions to monetize their content by showing relevant ads to their visitors. They typically use a combination of:

• Ad servers to manage and deliver ads

• SSPs to connect with demand sources

• Header bidding solutions to improve yield

• Analytics tools to track performance

6. Data Providers and DMPs

Data providers and data management platforms (DMPs) supply the audience insights that power targeted advertising. They collect, organize, and activate data that helps advertisers reach specific audience segments.

Major players include:

• Oracle Data Cloud (formerly BlueKai)

• Lotame

• LiveRamp

• Nielsen

• Experian

These companies typically charge fees for the use of their data segments, which can range from $0.50 to $5.00 CPM depending on the quality and specificity of the data.

How Money Flows Through the Programmatic Supply Chain

Now that we understand the players, let's follow the money. When an advertiser decides to spend $100 on a programmatic campaign, where does that money actually go?

The Financial Flow

1. Advertiser Budget: The journey begins with the advertiser allocating a budget for programmatic advertising.

2. Agency Fees: If the advertiser works with an agency, a portion of the budget (typically 5-15%) goes to the agency as a management fee.

3. DSP Fees: The DSP charges a platform fee, usually 10-20% of the media spend.

4. Data Fees: If third-party data is used for targeting, data providers charge additional fees (5-10% of spend).

5. Exchange/SSP Fees: The exchange and/or SSP take their cut, typically 10-20% combined.

6. Publisher Revenue: Finally, what remains reaches the publisher.

According to the 2023 ISBA Programmatic Supply Chain Transparency Study, publishers typically receive about 51% of advertiser spend, though this varies widely based on the specific supply path and partners involved.

The Adtech Tax Reality

The fees extracted by intermediaries along the way are collectively known as the "adtech tax." While this term has negative connotations, it's important to understand that these intermediaries provide valuable services:

• Technology infrastructure

• Audience targeting capabilities

• Fraud prevention

• Campaign optimization

• Measurement and reporting

The question isn't whether these services should cost money, but rather whether the costs are transparent and proportional to the value provided.

Supply Chain Transparency Challenges

One of the most significant issues in programmatic advertising has been the lack of transparency. Advertisers often don't know exactly where their money goes or even where their ads appear.

The "Unknown Delta"

The 2020 ISBA/PwC study revealed that about 15% of advertiser spend simply disappeared into what they called an "unknown delta" – money that couldn't be attributed to any known participant in the supply chain.

Good news: the follow-up study in 2023 found that this unknown delta had shrunk to around 3%, showing significant progress in supply chain transparency.

Hidden Fees and Arbitrage

Beyond the unknown delta, other transparency challenges include:

• Undisclosed fees: Some intermediaries take additional fees beyond their stated rates.

• Inventory arbitrage: Some players buy inventory at one price and resell it at a higher price without adding value.

• Bid shading: DSPs may reduce bid prices without advertisers knowing, potentially keeping the difference.

Industry Solutions to Improve Transparency

The industry has developed several initiatives to combat these issues:

1. Ads.txt and App-ads.txt

These files help publishers declare which partners are authorized to sell their inventory, reducing domain spoofing and arbitrage.

2. Sellers.json and SupplyChain Object

These technologies allow buyers to verify the entities involved in selling an impression and identify the full path from advertiser to publisher.

3. Supply Path Optimization (SPO)

SPO is a strategy used by DSPs and buyers to identify and prefer the most efficient paths to inventory, cutting out unnecessary middlemen.

Recent Evolution in the Supply Chain

The programmatic supply chain isn't static - it continues to evolve as technology and business models change. The journey of an ad impression has grown increasingly sophisticated.

Header Bidding Changed the Game

Header bidding fundamentally altered how the supply chain works by allowing publishers to offer inventory to multiple demand partners simultaneously before making calls to their ad server.

This technology:

• Increased competition for inventory

• Improved yield for publishers

• Made the traditional waterfall approach obsolete

• Created more direct paths from buyers to sellers

The Rise of Programmatic Direct

While real-time bidding (RTB) initially defined programmatic, direct deals now represent a significant portion of programmatic transactions:

• Programmatic guaranteed: Fixed-price, guaranteed inventory deals executed programmatically

• Private marketplaces (PMPs): Invitation-only RTB auctions

• Preferred deals: Fixed-price, non-guaranteed deals

These deal types create more direct relationships between buyers and sellers while still leveraging programmatic technology.

First-Price Auctions Dominate

The industry has largely shifted from second-price to first-price auctions, meaning the winner pays exactly what they bid. This change:

• Increased transparency

• Eliminated some hidden fees

• Required more sophisticated bidding strategies

• Created the need for bid shading technology

The Impact of Privacy Changes

Privacy regulations and platform changes have significantly impacted the programmatic supply chain, particularly the data component.

The Decline of Third-Party Cookies

Google's planned deprecation of third-party cookies in Chrome (after already being blocked in Safari and Firefox) is forcing changes in how audience targeting works.

This has led to:

• Greater emphasis on first-party data

• Development of alternative identifiers

• More contextual targeting solutions

• The emergence of "clean rooms" for privacy-safe data collaboration

Regulatory Impact

Regulations like GDPR in Europe and CCPA/CPRA in California have created new requirements for data usage in programmatic advertising. This has increased compliance costs and complexity throughout the supply chain.

Measuring Success in the Programmatic Supply Chain

With so many moving parts, how should advertisers measure success?

Beyond CPM: Holistic Metrics

Smart advertisers look beyond simple media metrics to understand true performance:

• Viewability: Was the ad actually seen?

• Brand safety: Did ads appear in appropriate contexts?

• Fraud rates: Were impressions served to real humans?

• Incremental lift: Did the campaign actually drive business outcomes?

Supply Chain Auditing

More advertisers are conducting regular supply chain audits to ensure their money is being spent effectively:

• Analyzing log-level data

• Comparing reported vs. actual fees

• Identifying supply paths with the best value

• Verifying audience delivery

The Future of the Programmatic Supply Chain

Looking ahead, several trends will shape the evolution of the programmatic supply chain:

1. Continued Consolidation

The number of intermediaries will likely continue to decrease as larger players acquire smaller ones and integrated solutions become more common.

2. Identity Resolution Changes

As third-party cookies disappear, new approaches to identity will emerge, changing how data flows through the ecosystem.

3. More Direct Connections

Technologies that enable more direct connections between advertisers and publishers will gain prominence, potentially reducing the role of some intermediaries.

4. Increased Transparency Requirements

Market forces and potentially regulation will continue to push for greater transparency throughout the supply chain.

Frequently Asked Questions

What percentage of programmatic ad spend actually reaches publishers?

According to the latest ISBA study, publishers receive approximately 51% of advertiser programmatic spend on average.

How many companies are typically involved in a programmatic transaction?

A typical programmatic transaction involves 5-7 companies including the advertiser, agency, DSP, exchange, SSP, and publisher.

What is the "unknown delta" in programmatic advertising?

The unknown delta refers to money that enters the programmatic ecosystem but can't be attributed to any known fees or participants. In 2020, this was about 15% of spend, but has decreased to around 3% in more recent studies.

How can advertisers improve transparency in their programmatic supply chain?

Advertisers can demand log-level data from partners, implement ads.txt and sellers.json verification, work with fewer trusted partners, and conduct regular supply chain audits.

Are direct deals more efficient than open auction buying?

Not necessarily. While direct deals often have fewer intermediaries, they may have higher negotiated CPMs. The efficiency depends on the specific deal terms and partners involved.